As you might have already understood customer type is a key notion in the overall customer account management. It defines main customer account settings, discounts a customer will have and customer profile fields.
By default, there is only one customer type in the system. So, when you go to Administration > Customers > Profile Settings/Types, you will see the following:
The page you are in allows general customer type management.
look through the customer type list and sort it by type ID, name or put the default type at the beginning or at the end of the list (click the name of the column you want to sort the types by and notice the up or down arrow next to the column name);
proceed to customer account settings section (see details);
proceed to customer profile settings section (see details);
add a new customer type (click the 'Add User Type' link at the foot of the block).